Demand for the best office buildings in New York has not only recovered — it’s causing a spillover effect.
Large tenants that have lease terminations over the next several years are racing to snap up space while it’s hot in trophy towers.
Meanwhile, yet-to-be constructed towers — like 175 Park Ave., 347 Madison Ave., 3 Hudson Blvd., 70 Hudson Yards and 2 World Trade Center — are tempting anchor tenants with $200-per-foot rents in hopes of rising from the ground.
“We will have a moment of scarcity in the high end,” said David Goldstein of Savills.
The availability rate for better buildings in Midtown is 8.5%, while four years ago it was 15%, according to Newmark. Overall, the Midtown availability is 16.6% but without sublets is 13% on a direct basis. The average trophy rent is $143 per foot with the rest of Midtown averaging $83 per foot.
“Occupiers are spending more to be in the best buildings with amenities and appearance,” said David Falk of Newmark.
That’s why there are no “great” options for big tenants in the prime portions of Midtown, explained Bill Elder of RXR — one of the developers of 175 Park which owns and leases buildings that include 5 Times Square and Worldwide Plaza.
“Look at the effective rate of vacancy right now and look at the pipeline of new buildings,” Elder said. “On Park, Madison and Sixth avenues there is no space. The A- and B++ buildings might actually get a lift.”
To capture that demand, SL Green’s 245 Park Ave. is being transformed with a new lower façade and amenities like a rooftop park. It has 300,000 square feet available.
“The market is not gangbusters, but it’s stronger than anyone realizes,” said Falk.
“While the old real estate mantra was ‘Location, location, location,’ it evolved into ‘New construction, new construction, new construction.’ Now it’s also ‘Location, renovation, amenities.’”
Peter Turchin of CBRE
Another 850,000 square feet is on the market at Brookfield’s reimagined 660 Fifth Ave. But that could be absorbed by Citadel, for instance, which is on the prowl for 400,000 to 800,000 square feet for around the next 10 years, while one of its current office buildings at 350 Park Ave. is demolished, built anew and made ready to move back in.
The financial firm Jefferies, now located at 520 Madison Ave., is also seeking 800,000 square feet, brokers said.
When its new 2.5 million-square-foot 270 Park Ave. headquarters is completed, JPMorgan Chase will likely keep its tower at 383 Madison Ave., but brokers say it may also retain space at 390 Madison and 277 Park that it leased during construction. A JPMC spokesman said the new building is expected to open by the end of 2025.
“It has 2.5 million square feet of flexible and collaborative space that can easily adapt to the future of work,” spokesman Michael Fusco said.
Small financial tenants are also having a rough time finding high-quality space to lease in the Plaza District. Adam Henick, of Current Real Estate Advisors, said every building he called for a client seeking 10,000 square feet by the end of the summer had either just leased or had leases out.
“The bulk of the vacancies are at the base of the building with bad light and air and no views,” Henick said.
Because of that need for speed, Lever House, at 390 Park Ave., is working on two pre-built 10,725-square-foot floors at a pricey $200 per foot. After Lever House’s 12th-floor marketing space was grabbed by a tenant, they decided to build out two more floors.
“Tenants didn’t leave enough time [for build-outs] and it helps to show the building,” said agent Caroline Merck of CBRE .
Brokers say tenants are ready to pay for well-managed, well-located spaces. That’s why, after quickly leasing a prebuilt floor last year at 527 Madison, Mitsui Fudosan America may also do the same to the 8th floor of 11,500 square feet that has access to the building’s outdoor terrace.
To attract tenants after IBM moves to One Madison, its current private amenity space at Edward J. Minskoff Equities’ 590 Madison at East 57th Street will be refurbished by Gensler architects to serve the whole building, according to agent Brett Shannon of CBRE. IBM’s 250,000-square-foot space has an asking rent ranging from $106 to $120 per foot.
“While the old real estate mantra was ‘Location, location, location,’ ” Peter Turchin of CBRE said, “It evolved into ‘New construction, new construction, new construction.’ Now it’s also ‘Location, renovation, amenities.’”